Liang Fuzhao, ex-vice mayor of Nanhai City, has been arrested with the help of Cambodian police.

Liang was closely involved with Feng Mingchang, a private entrepreneur, who allegedly defrauded the Industrial and Commercial Bank of China of billions of yuan in illegal loans, Guangzhou media reported Monday.

Liang, aged 50, had been vice mayor of Nanhai December from 1992 until January 2003, when he was promoted to vice Party chief of Chanchen District, Foshan. He left Hong Kong for Cambodia on June 3, about three weeks before the exposure of Feng Mingchang's alleged fraud by general auditor Li Jinhua.

Feng's Huaguang company was said to have borrowed some 4 billion yuan (US$482 million) from China's state-owned banks, and was not able to repay them.

The merger of Nanhai into the city of Foshan directly caused Huaguang's financial problems.

At the end of 2002, Nanhai handed over its financial and fiscal documents to Foshan city. It was during the auditing process before the handover that many banks in Nanhai were found to have overdue and non-collectable loans of about 4 billion yuan (US$ 482 million), most of which were issued to Huaguang. The Nanhai branch of the Industrial and Commercial Bank of China (ICBC) had loans of about 2 billion yuan (US$ 242 million) that they could not collect. After the problem surfaced, the banks stopped issuing new loans to Huaguang.

Insiders say that many banks started to do business with Feng in 1998. Among them, ICBC's Nanhai branch issued the most loans to Feng.

A total of 62 people, including Feng himself and five government and bank officials, had been arrested. The report also said Deng Yaohua, former Party Chief of Nanhai and now mayor of Zhaoqing City, had allegedly asked the banks to issue loans to Feng.

(Shenzhen Daily July 28, 2004)